After Eaton (ETN) agreed to purchase Cooper Industries in a cash-and-stock deal valued at about $11.46 billion, Cooper shares rallied over 25% higher closing near $70-a-share.
What is Eaton's game plan? They're apparently determined to create a company that makes a very wide range of electrical products.
According to Eaton's news release, Eaton Chairman and CEO Alexander M. Cutler, who will also lead the combined operations, said: "This compelling combination of Eaton's power distribution and power quality equipment and systems with Cooper's diversified component brands, global reach and international distribution creates a game changer to serve the electrical industry."A Wall Street Journal report claimed that the purchase gives Eaton "greater bulk in competing "with global rivals such as Schneider Electric of France, Emerson Electric (EMR) of the U.S. and ABB (ABB) of Switzerland. So how do investors find the next Cooper Industries that will be acquired at a premium by their competitor? Begin by studying the reasons and the synergies that motivated Eaton to buy Cooper at a 25% premium over last Friday's closing share price. Study the news release and the specific reasons given by officers surrounding the decision and their motives. Statements like, "We are extremely pleased to become part of Eaton's global electrical business," said Kirk Hachigian, chairman and chief executive officer of Cooper. "This combination creates endless opportunities to accelerate growth and serve our global customers through combining technology, distribution, penetrating important vertical industries and entering new emerging markets. The two companies are a perfect fit in every respect." Insights like that give investors some helpful clues as to why Eaton targeted Cooper. The takeover also reminds us that companies with similar market cap sizes may go after one another if the acquisition is all or part stock and eventually accretive to earnings. The motive may be expanding the acquirer's scope of business or branching out into more diversified geographic areas. That's why I wouldn't be surprised if a company like Freeport McMoRan Copper & Gold (FCX) didn't eventually try to acquire a slightly smaller rival like Southern Copper (SCCO).
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